Florida, Louisiana battered insurance markets brace for hurricane season

Floridians enjoyed very light hurricane activity the past three years, which makes the ongoing collapse of the property insurance market alarming for many. With hurricane season officially starting Wednesday, there is grave concern that the state is heading for disaster should its luck run out.

Emergency legislation approved last week and signed by Gov. Ron DeSantis is akin to applying a Band-Aid to a ruptured artery, said Mark Friedlander, director of corporate communications at the Insurance Information Institute.

“We've never seen anything like it. It is extreme volatility right now,” Friedlander said. “We don't see any slowing down that trend. Unfortunately, this is bad news for homeowners, and it is bad news for insurers. There are no winners, there are all losers here.”

To date in 2022, Lighthouse Property Insurance Corp., Avatar Property Insurance and St. John’s Insurance Co. were ordered into liquidation, the Florida Insurance Guarantee Association reports.

At present, remaining insurers unable to get reinsurance is a more worrisome trend, Friedlander explained. It is possible that “four to five” insurers will be unable to get the proper level of reinsurance for hurricane season, he said, which would lead to their ratings likely being withdrawn and being placed into receivership by the state.

If that happens, it will be the biggest failure of insurers in Florida since 1992, when the devastating Hurricane Andrew resulted in seven insurers being declared insolvent.

The new legislation addresses several issues, the biggest being $2 billion in tax dollars to provide additional reinsurance to property insurers that otherwise might not be able to buy the crucial backup coverage on the private market. But it comes too late and isn’t enough, Friedlander said.

Not just Florida

It is not unusual for extreme storm activity, or a single devastating event like Andrew, to disrupt the market and send insurers to the sidelines. In fact, it is happening right now in Louisiana, where at least six insurers declared insolvency in recent weeks.

As a result, more consumers are being funneled into the Louisiana Citizens Property Insurance Corporation, the state's insurer of last resort. More than 13,000 policies have been added to the state-run organization's rolls since right before Hurricane Laura struck in 2020.

But industry critics say the corporate collapse is an indictment of the state's top insurance regulator, whose main job is to monitor the financial strength of insurers and prevent such abrupt failures.

"If you're offering homeowners and commercial insurance in south Louisiana, then you should be financially prepared for a hurricane," said Eric Holl, a spokesperson for the consumer advocacy group Real Reform Louisiana.

State Insurance Commissioner Jim Donelon acknowledged in an interview that solvency monitoring is a core job for his department and that consumers weren't well-served in some cases.

"(Monitoring) is our number one responsibility; to protect consumers and primarily do that by making sure companies have the money to fulfill the promises they make when they collect your premium," Donelon said. "In the case of those four companies, we did not accomplish that protection. We're working to improve the system on a go-forward basis."

Scam season

The problem in Florida is roofing scams and lawsuits, Friedlander said, often victimizing unsuspecting property owners. Florida accounts for about 8% of all property insurance claims nationwide, he said, but a whopping 80% of lawsuits over those claims. More than 100,000 such lawsuits were filed last year, he added.

Lawsuit activity coincides with door-to-door roofing scams that take advantage of “loopholes” in Florida laws, Friedlander explained. Contractors tell property owners there’s been storm damage in the area and offer to do a free assessment of their property.

Property owners are often encouraged to sign an “assignment of benefits,” in which they sign over their insurance claims to contractors. The contractors then seek payment from insurance companies — often spurring lawsuits about claims and payments.

“Many homeowners don't even realize they’re being scammed and they don't understand why, either their insurance has doubled year over year, or their policy is being non-renewed,” Friedlander said. “And this is happening by the thousands and thousands.”

The Insurance Information Institute reports statewide premiums are up nearly 25 percent this year.

Lawsuit already filed

The new legislation will allow insurance policies to include new deductibles for roof damage, impose restrictions on insurers that seek to refuse to write or renew policies based on the ages of roofs, and place additional restrictions on what are known as “bad faith” lawsuits against insurers.

Again, Friedlander said it is very much too little and too late to stave off dire consequences.

“It should have never gotten this bad in the market for them to make these moves and create these reforms,” he said. “Not that these reforms won’t have an impact years down the road. But nothing immediately.”

A contractors group Tuesday filed a constitutional challenge that targets the restrictions on attorney fees in lawsuits against insurers. The Restoration Association of Florida and Air Quality Assessors, LLC, an Orlando firm that does work such as mold testing and leak detection, filed the lawsuit in Leon County circuit court.

The lawsuit said invoices for work done by Air Quality Assessors and many other members of the association often total $2,500 to $3,000.

“The inability to recover prevailing party attorneys’ fees will effectively shut the courthouse door to plaintiffs because it will be cost-prohibitive to pay an attorney for these types of small claims,” the lawsuit said.

Insurer of last resort

The Florida legislation completely punted on the issues related to Citizens Property Insurance Corp., the state-backed insurer of last resort. Instead, Citizens is now taking on far too much risk as private companies shed policies and raise rates to deal with financial losses. As an illustration, Citizens had 851,006 policies on April 30, up from 453,911 policies two years earlier.

Many leaders have long sought to shrink Citizens because of concerns about policyholders across the state — including those who are not Citizens customers — potentially being on the hook to help pay claims if Florida gets hit with a major hurricane or multiple hurricanes.

Lawmakers did not make changes designed specifically to address issues such as Citizens' growth and premiums, though parts of the overall legislation will affect Citizens like it does other insurers.

"The simple truth is if Citizens was a regular insurance company, we would never have let it grow as fast as it did," state Sen. Jeff Brandes said.

Citizens is a politically sensitive issue, as they are the only option for many South Florida property owners. And therein lies a simmering problem, Friedlander said.

"The majority of their businesses is in South Florida, which is the most vulnerable to hurricane activity losses," he said. "If they were to suffer significant hurricane losses and say they depleted their reserves, then everybody in Florida would pay to make up for those lost reserves. That means not only would every property owner pay, but every renter, anybody who has an insurance policy in Florida would be paying."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

Wire services contributed to this report.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.